Welcome to Alico’s Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. Earlier today, the company issued a press release announcing its results for the fourth quarter and full year ended September 30, 2021.

If you have not had a chance to view the release, it’s available on the Investor Relations portion of the company’s website at alicoinc.com. This call is being webcast and a replay will be available on Alico’s website as well. Before we begin, we would like to remind everyone that the prepared remarks today contain forward-looking statements.

Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in these statements.

Important factors that could cause or contribute to such differences include risk details in the company’s quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K and any amendments thereto filed with the SEC and those mentioned in the earnings release.

The company undertakes no obligation to subsequently update or revise the forward-looking statements made on today’s call, except as required by the law. During this call, the company will also discuss non-GAAP financial measures, including EBITDA and adjusted EBITDA.

For more information – for more details on these measures, please refer to the company’s press release issued earlier today. With that, I would like to turn the call over to the company’s President and CEO, Mr. John Kiernan. Please go ahead..

Thank you, Rob and thank you everyone for joining us for Alico’s fourth quarter and fiscal year ended September 30, 2021 earnings call this morning. Overall, we are pleased with our financial results for fiscal year 2021.

We saw significant increase in our adjusted EBITDA over the prior year increasing 41% as a result of the increased fruit market prices, the expansion of our caretaking management initiative and the continued stringent control over our expenses, specifically, our general and administrative expenses, which declined by approximately 8% over the prior year when excluding non-recurring items.

These results were achieved despite box production and average pound solids per box disappointments largely due to the higher drop rate for citrus in Florida this past season and the quality of the fruit not being as strong as in the previous year.

Market prices significantly improved in fiscal year 2021 due to the steady consumption of not-from-concentrate orange juice throughout the fiscal year.

As a result of this improved level of consumption, combined with lower quantities of citrus fruit grown last season in Florida as well as in Brazil and Mexico, we recognize that current processor inventories for not-from-concentrate orange juice were at lower than normal levels.

We are encouraged that consumption of not-from-concentrate orange juice is continuing to remain strong in fiscal year 2022 and the latest Nielsen data shows consumption now at levels last seen in 2016.

Based on these trends for consumption demand and local and global supplies, we believe market prices for fiscal year 2022 should remain near or above those recorded in the 2020/21 harvest season.

Along with the improved financial results, there were other significant actions we executed throughout the fiscal year that we believe will improve our future shareholder returns. These actions consisted of the following.

Our Board of Directors approved a considerable increase in our quarterly dividend, raising it to $0.50 per common share from $0.18 per common share. We believe this latest increase reflects our Board’s continued confidence that our financial strength and business strategy will support this increased dividend level for the foreseeable future.

We successfully improved our balance sheet by converting two fixed rate amortizing term loans into interest-only debt, which will continue to mature in November 2029. This modification improves our annual cash flow by approximately $5 million to $6 million.

Additionally, as part of this modification, we were also able to reduce our interest rate from 4.15% to 3.85% for that tranche of debt. We repaid approximately $22 million of debt, which included a prepayment of $10.3 million on our fixed rate term loans prior to the debt modification.

As of September 30, 2021, we have improved our debt-to-equity ratio from 0.51:1. It was 0.68:1 a year ago. Over the past 5 years, we have reduced our debt balances by 36%, having made principal payments of approximately $71 million.

We acquired approximately 3,280 gross citrus acres using proceeds from a previous sale of ranch land to the state of Florida, which enabled us to defer almost $4 million of gain from that sale.

These acquired citrus acres were well maintained and close to our existing groves, which is allowing us to further leverage the economies of scale for our grove operations and back office.

Since making this acquisition, we have planted over 100,000 trees at this location to increase its density and are confident that this investment will generate positive cash flow in the years to come. We entered into new citrus supply agreements with Peace River Citrus Products covering 3,614 gross citrus acres purchased in May and October of 2020.

With these new supply agreements, along with our existing agreements with Tropicana, approximately 99% of our fruit is under contract through the 2023 and 2024 harvest seasons with the largest portion being under contract through the 2024 harvest season.

These contracts will continue to enable the company to realize competitive margins for their duration. We continue to evaluate our non-citrus assets and opportunistically sold off ranch land at premium prices to generate cash flow, which improves rates of return for our investors.

During the fiscal year 2021, we closed on the sale of approximately 19,800 acres of ranch land.

Most recently, last week, actually, we closed the sale of an additional 1,638 acres for approximately $5.7 million to the state of Florida under the Florida Forever program, making this the fourth sale we have completed with them under this program for an aggregate of approximately 24,000 acres.

We still have approximately 32,000 acres of ranch land for potential sale and interest from buyers continues to be high.

Net proceeds from future sales of Alico assets will be used to maximize shareholder returns by either acquiring additional citrus acres at attractive prices, prepaying variable rate term debt without penalties, repurchasing common shares, diversifying our business through other acquisitions and/or paying special dividends.

We planted approximately 400,000 trees in fiscal year 2021 and have planted approximately 1.5 million new trees since 2018 with anticipated production from the first of those plantings expected in fiscal year 2022.

We believe our tree planting strategy over the last 4 years has the long-term potential to enable the acres we now own to return box production close to our historic 10 million box level. We have also continued to move forward with our environmental, social and governance initiatives.

As previously communicated, we have formed a Board committee, launched a sustainability page on the company’s corporate website, which includes our sustainability policy, vendor code of conduct and safety manual; completed a materiality assessment that helped inform a sustainability framework to guide future ESG activities; and joined the UN Global Compact to support universal sustainability principles of environmental responsibility, labor and human rights and anticorruption.

We are also in the final stages of completing our inaugural annual sustainability report, which we plan to publish later this week. As we look ahead to fiscal year 2022, we are providing guidance as follows. Net income is projected to be between $10.7 million and $12.7 million.

Adjusted net income after adjusting for certain non – for certain expected non-recurring items is projected to be between $5.4 million and $7.1 million. EBITDA is projected to be between $33.7 million and $37.1 million and adjusted EBITDA after adjusting for certain expected non-recurring items is projected to be between $26 million and $29 million.

The above guidance only includes estimates of gains from asset sales for sales transactions that have closed in fiscal year 2022 to-date. In the event that any additional significant gains on asset sales are realized, Alico may decide to revise the company’s guidance.

The above guidance reflects improved adjusted net income and adjusted EBITDA as compared to prior fiscal year financial results. With that, I will turn the call over to Rich Rallo, who will discuss our more detailed financial results.

Rich?.

Thank you, John and good morning everyone. As our fourth quarter is not indicative of our full year results due to the seasonal nature of our business, I will focus primarily on our full year 2021 results today.

As a reminder, the majority of our citrus crop is harvested in the second and third quarters of the fiscal year with the majority of our profit and cash flows also recognized in the second and third quarters.

For the fiscal year ended September 30, 2021, total operating revenue was $108.6 million compared to $92.5 million for the fiscal year ended September 30, 2020. Citrus revenue was $105.8 million and $89.4 million for the fiscal years ended September 30, 2021 and 2020 respectively.

The increase in revenue for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 was due to an increase in revenue generated from our grove management services and our Valencia fruit harvested.

We provide our grove management services, which includes citrus grove caretaking and harvest and home management services, to approximately 7,400 acres owned by third-parties, of which approximately 7,000 acres are serviced under a long-term agreement we entered into in July 2020 with a top 10 grower.

As part of these agreements, we are reimbursed for all costs incurred related to providing these services and receive a management fee based on acres covered from the third parties. As a reminder, we record both an increase in revenues and expenses as and when we provide these services.

For the fiscal year ended September 30, 2021, we recorded approximately $17 million of operating revenue from grove management services as compared to approximately $4.6 million in the fiscal year ended September 30, 2020.

The increase from the Valencia fruit harvest was driven by an increase in the market price per pound solid as compared to the prior year. Our average blended price per pound solid increased from $1.86 in the prior fiscal year to $2.46 for the current fiscal year.

The increase, as mentioned earlier, was due to increased consumption of not-from-concentrate orange juice as well as tighter supplies of citrus fruit, which in turn led to reduced inventory levels.

Largely offsetting this increase in pricing was the effect of fewer Valencia boxes being harvested and lower pound solids per box for the fiscal year ended September 30, 2021, compared to the prior year.

We, along with the entire Florida industry in general, recorded a smaller number of boxes harvested as a result of greater fruit drop during the current harvest season as compared to the previous year. In addition, the internal quality of the fruit was not as strong as in the previous year resulting in lower pound solids per box.

The USDA in its final citrus crop forecast report for the 2020/21 harvest season indicated that the Florida orange crop decreased by 21.7% to approximately 52.8 million boxes from approximately 67.4 million boxes in the prior harvest season. In comparison, we managed a more favorable decline in the current harvest season of 16.1%.

The increase in operating expenses for the fiscal year 2021 as compared to fiscal year 2020 mostly relates to our growth management services. As previously stated, we entered into an agreement with a top 10 grower to provide caretaking management services covering approximately 7,000 acres.

For the fiscal year ended September 30, 2021, we recorded approximately $15.1 million of operating expenses from grove management services as compared to approximately $3.8 million in the fiscal year ended September 30, 2020.

Additionally, in May and October of 2020, we purchased additional citrus acres, which resulted in cost of sales relating to these acres being realized in fiscal year 2021. Partially offsetting these increases was a reduction in harvest and haul expenses attributable to a decrease in early and mid-season and Valencia boxes harvested.

General and administrative expenses for the fiscal year ended September 30, 2021, were approximately $9.5 million compared to approximately $11 million for the fiscal year ended September 30, 2020.

The decrease was attributable to a reduction in legal expense of approximately $800,000 primarily resulting from the receipt of insurance proceeds for the reimbursement of legal fees in the amount of approximately $700,000 during the fiscal year ended September 30, 2021, relating to corporate legal matters; a reduction in stock compensation expense of approximately $200,000 pertaining to certain stock options that had vested in January 2020, which in turn resulted in an acceleration of expense in that fiscal year; a reduction in payroll expenses of approximately $300,000 and relating to the resignation of a senior manager in fiscal year 2020; and the reduction in other administrative personnel made in fiscal year 2021; and a reduction in pension expense related to our deferred retirement benefit plan of approximately $200,000 as a result of terminating this plan and paying out each plan participant in August 2020.

Partially offsetting this decrease was approximately $200,000 incurred in corporate advisory fees in fiscal year ended September 30, 2021. Other income net for the fiscal years ended September 30, 2021, and 2020 was approximately $31.9 million and approximately $24.5 million, respectively.

The increase in other income net was primarily due to the recording of higher gains on sales of real estate, property and equipment and assets held for sale in fiscal year 2021 as compared to the previous fiscal year.

For the fiscal year ended September 30, 2021, we recorded gains on sales of real estate, property and equipment and assets held for sale of approximately $35.9 million relating to the sale of approximately 19,800 acres for the Alico ranch to several third parties.

By comparison, for the fiscal year ended September 30, 2020, we recognized gains on sales of real estate property and equipment and assets held for sale of approximately $30.4 million.

Additionally, a decrease in interest expense of approximately $2 million for the fiscal year ended September 30, 2021, as compared to the fiscal year ended September 30, 2020, and was realized due to the reduction of our long-term debt from the making of mandatory principal payments along with other prepayments.

In addition, we maintained lower balances on our working and revolving line of credit, which also resulted in reduced interest expense.

During the fiscal years ended September 30, 2021, we received approximately $4.3 million of additional proceeds under the Florida Citrus Recovery Block grant program relating to Hurricane Irma damage sustained in 2017. Through September 30, 2021, we have received approximately $24.5 million of proceeds under this program.

These federal relief proceeds are included as a reduction to operating expenses in the consolidated statement of operations. The remaining portion of funds that are due under this program relates to the reimbursement of certain crop insurance expenses incurred by us that are estimated to be approximately $2 million.

In October 2021, we received the first portion of this crop insurance expense reimbursement in the amount equal to approximately $1 million, and we expect to receive the remaining portion in the early part of fiscal year 2023.

For the fiscal years ended September 30, 2021 and September 30, 2020, we reported net income attributable to Alico stockholders of approximately $34.9 million and approximately $23.7 million, respectively, representing a 47.3% increase.

Our adjusted EBITDA was approximately $25.3 million for the fiscal year ended September 30, 2021, as compared to approximately $17.9 million for the fiscal year ended September 30, 2020, representing a 41.2% increase. We continue to strengthen our balance sheet.

Our working capital was approximately $32.6 million at September 30, 2021, representing a 2.46:1 ratio. Our debt-to-equity ratio continues to improve. At September 30, 2021, September 30, 2020, and September 30, 2019, the ratios were up 0.5:1, 0.68:1 and 0.82:1, respectively.

This improvement has been driven by continued mandatory payments of our long-term debt as well as certain prepayments made, including approximately $10.3 million in April 2021 on our fixed term loans. I would like to now pass the call back to John..

Thank you, Rich. As stated, fiscal year 2021 was a good year for Alico. We saw improvement with our financial results compared to the prior year, and we’re also able to execute on several other business strategies, which we feel will have long-term benefits for both Alico and its shareholders.

Looking ahead to fiscal year 2022, we believe we have positioned ourselves for continued leadership in the citrus industry and are cautiously optimistic that we can continue to grow our financial results this season. And with that, we will now open the line up to questions from industry analysts.

Rob?.

Thank you. [Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital. Please proceed with your question..

Hi. Good morning John and Rich. Thanks for taking my call..

Good morning, Gerry.

How are you doing today?.

I am doing well, thanks. I had a question on volumes and not just even next year but even referring to some of your comments about potentially getting back to sort of the Alico historical rate of 10 million boxes. I think you said we’ve planted about 1.5 million trees. Obviously, they take some time to mature.

There is some – you made a small acquisition, and then you have sort of mother nature who waves her hands over all this any given year.

What type of production could we look at next year? And potentially how long would it take to get to that 10 million, we will call it an aspirational goal, 10 million boxes? And would you need additional acquisitions to get there? So couple of questions all wrapped up into one, but if you could get to it..

Sure. I’ll let Rich dig into the details of that, but that – this is basically just organic. We’re not going to require any additional but this is on 49,000 acres of citrus that we currently own and operate. We have been planting. We have in excess of 5 million trees in the ground right now. The younger trees are developing quite nicely.

And we haven’t made any sort of detailed long-term forecast other than kind of year-to-year. So we’re going to be reluctant to actually put a pin in the ground of when potentially we could get back to that 10 million number. But we have been at 10 million in recent past.

Rich, do you want to take it any further?.

Yes. So Gerry, I’ll just mention, as you mentioned, we planted 1.5 million trees. Just a reminder for everyone, we really don’t see any production. That production doesn’t really commence until year 4 and really doesn’t peak until year 7 and 8.

So as you look at over the next several years, we will have all of these trees be coming into production and slowly but surely continuing to produce greater production. So I just wanted to point that out so you can see in several years how that buildup is going to work out..

Got it. Okay. And then acquisitions, made some small orchard acquisitions, how does that pipeline look? I imagine – obviously, you are one of the biggest or top two or three in the state.

How are some of these discussions pipelines going? What’s sort of the feel or what are you seeing out there? And how active could you be in that space or want to be or willing sellers are there?.

Sure. We can’t really speak to the mindset of potential sellers, but it has been difficult to compete in the citrus industry here in Florida over the past several years. Pricing has been a challenge. Certainly, production has been a challenge. Input costs are becoming more expensive by the day, particularly on the fertilizer side.

But Alico is blessed because, over a 120-year history, we have built a bulletproof balance sheet. And we have access to capital as a public company that, honestly, our competitors can’t really kind of measure up against. So, in the event that there are willing sellers at reasonable prices, Alico should be the first call to basically strike a deal.

We have demonstrated our long-term commitment to the citrus industry. We have demonstrated our ability to commit assets and resources to put more trees in the ground. We have a very strong, highly competent management team, but an even stronger and more competent workforce that basically care-takes our acres day-in and day-out.

We think they are the best in the state. We just value and respect them. And we are committed to staying in the citrus industry for generations to come. So, in the event that there is going to be consolidation with citrus, we believe that Alico is going to be participating in that..

Does the phone ever ring? I am just curious, I mean – or do you get the opportunity to kick tires, or is it just quiet right now?.

No, it really isn’t quiet, quiet. We acquire small parcels here and there in an opportunistic fashion if it makes good economic sense for us, typically adjacent to existing properties.

We have not had significant serious conversations with very large competitors because I think they are evaluating their own strategy, and we respect them as competitors. They are running their business, and frankly, we would like to see the citrus industry in Florida stronger than it is today.

So, anything that we can do to kind of promote the strength of the industry, we are all about that. But no, we are not in active discussions right now with any large parties..

Okay. Got it, small, but not large, got it. And then inflation, right, you mentioned a little bit. Even on fertilizer, there is probably harvest and hauling costs. Anything for us to keep an eye out on that front? We do know fertilizer prices headed up different and just curious across the board..

So, some of the input costs we think are probably tied a little bit more to the supply chain headaches as opposed to just general overall inflation. Certainly, we are competing globally now for input costs, fertilizer coming abroad and such. We are very sensitive to kind of labor. We need people working every day.

We believe we have got our bases with labor covered. We did have a wage increase with our workforce this year. We have secured ample labor over the next several seasons already for our harvest and hauling activities as well as some certain caretaking activities that we are going to be using some third-party labor for as well.

So, we kind of have de-risked the labor issue, at least for the next couple of years. And all of those kind of wage increases are factored into the guidance that Rich and I actually have already shared with you. So, we are forecasting financial improvement despite a higher inflationary environment..

Got it. Just a couple more. I don’t know if there is anyone else in line. But land management, I think you run the 7,000 acres that you run for a large company. How are the discussions on that front in terms of adding to that opportunity? Not just 7,000, but new customers, I should say, I apologize..

Sure. No. So, that third-party caretaking customer, we still value very highly. We are in discussions with them every day from a communication perspective. They have a diversified business overall.

So, I think they appreciate us being able to kind of manage their citrus resources with our citrus assets and personnel with the expertise that we bring to the table. And we certainly are in discussions with a few other parties at any given time.

But as we have said at the beginning, we are very discriminating on which customers we would entertain doing kind of broad, large-scale caretaking business for because it has to make economic sense for the customer.

But we also want to make sure that the quality of fruit that we have been working with kind of is in line with kind of our quality, because when we sell it, at the end of the day, it’s [Technical Difficulty]. Yes. So, we basically are little discriminating on that side. We do see it as a growth avenue.

That is the counterbalance of if somebody decides they are having difficulty in citrus as an operator and want to explore kind of third-party caretaking, sometimes we can actually provide them economic advantages that they could not do on their own just based on our economies of scale.

That certainly is a very strong alternative as opposed to just selling out and disposing of land that they have been in their family for generations. So, those talks are ongoing, but again, nothing to significantly report at this time..

Got it. And then obviously, land sales, I think Florida forever has been a big acquisition opportunity through the State of Florida. Anything – this last purchase was a little smaller than some of the purchases in years past.

Just curious if – how those talks are going for the State of Florida and then just the general tone and tenor across the board for other opportunities..

So, the State of Florida, obviously, we closed on that sale last week. We have been in talks – and that transaction had been kind of in process since last winter. So, it took a little bit longer basically because of some Tallahassee approvals relative to cabinet meetings and such that got delayed and deferred for a few years.

They proceeded without a hitch, and we think it was at a good value. I think they are very satisfied buyers. That was the fourth acquisition that we had basically completed with the state. They acquired from us, by the way. We didn’t acquire from them.

But it’s a good feeling to know that, that land that’s been in – with Alico for decades is going to be able to be part of a wildlife reserve and state park. It’s going to be for the greater good for the overall citizens of Florida, and it will be kept intact for conservation purposes. We think that’s a wonderful.

We have done some smaller transactions as well over the last couple of quarters with some private buyers that again share that same mindset, kind of recreational hunters who want to get out there and basically just enjoy the remaining acres that we have on the ranch land for all its beauty and hopefully keep it intact as well.

We think that bodes very well with kind of the themes that will be sharing with everyone in our first sustainability report, which should be coming out this week. But there is a scarcity factor, particularly for contiguous ranch land in Southwestern Florida, and we have got about 32,000 acres remaining.

Most of that is over on the east side of our ranch now, which is somewhat contiguous, and we are entertaining discussions with potential buyers all the time. We are showing that property constantly.

We are just holding out for good at or better market prices that, hopefully, we are going to generate higher returns for shareholders once we realize them..

Got it. Okay. Perfect. Well, great, nice, great year ended up ramp up and I appreciate your time. So, thanks..

Thanks Gerry. We appreciate the support..

Thank you. Next question is from the line of Marco Rodriguez with Stonegate Capital. Please proceed with your question..

Good morning. Thank you for taking my questions..

Good morning Marco..

Most of my questions have actually been asked and answered, but I did have one quick follow-up, if I might, just kind of along the lines of your expectations for pricing and inflation.

Wondering maybe you can provide a little more color on some of these inflationary pressures and how you might be thinking about that as it relates to any potential impact on consumption and then any sort of supply dynamics?.

Sure. We are not experts in kind of retail consumption dynamics. We sell the inputs, right. We sell the oranges themselves. So, relative to kind of what consumers can expect in their supermarket shelves, we are really not in a position to comment on that.

However, as we mentioned earlier, 99% of our fruit is now under kind of long-term off-take agreements, some contracts with a couple of parties, Tropicana being the most dominant. And those are actually structured within kind of a collared arrangement. We believe we are probably at the higher end of the collar for the foreseeable future.

So, we will be looking at kind of maximum revenues that we potentially could regain. And at the end of the 2023 and 2024 harvest seasons, those contracts would be up for renewal and would be reset, obviously, if there was still a higher inflationary environment at higher prices..

Got it. And then last one, I just want to kind of clarify some of the commentary you had on the selling of non-core assets. But it sounds like the market’s not terribly active. There is some activity.

But perhaps should we be thinking about this coming fiscal year as maybe being a little bit lower level of activity in terms of sales and acquisitions versus the prior year?.

Yes. So, I think that’s a fair statement as opportunistic sellers of a very precious resource, which is our Alico ranch land. We are really not in a rush, and the Board is not holding us accountable for disposing of this branch in on any sort of time table. So last year, I think we did, what, $37 million, Rich, of asset sales.

I would expect that’s going to be substantially lower this year, although we just realized a ranch sale last week..

Got it. Thank you..

Thank you. We have reached the end of today’s question-and-answer session. I would like to turn the call back over to Mr. Kiernan for closing remarks..

Thank you, and thank you, everyone, for joining us on our call today and also for your support of Alico throughout the year. We really look forward to speaking with you about our first quarter results in February, and wish everyone a Merry Christmas..

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day..